Paying With Your Mobile - What is NFC Technology?

Near Field Communication (NFC) is a technology used in modern mobile devices that enables them to connect to each other in a matter of seconds when held close together.

Two devices with a NFC chip can quickly establish a low-speed connection to transfer data. This can be very useful for transferring files such as songs, documents or photos, but a common use today is contactless payments using stored debit card information.

Major technology companies, payment providers and financial institutions spent the past decade making this ‘no cash’ dream into a reality for everyday transactors. Led by the launch of Visa Paywave and Mastercard PayPass in the late 2000s, contactless payments are now the norm at many large retailers.

Australians have in general embraced the availability of contactless payments – according to the RBA, more than one-third of all our point-of-sale transactions in 2016 were contactless; when considering card payments alone, nearly two-thirds were contactless, representing a threefold increase since 2013. Major smartphone providers added support for NFC in recent years, such as Apple Pay in 2014 and Android Pay (now Google Pay) in 2015. Furthermore, a large number of Australian banks partnered with these services, a number which is continuing to grow. NFC seems to be growing increasingly ubiquitous, so is this the idyllic future we all want? Or does NFC technology carry a certain amount of risk to avoid?

What exactly is NFC technology?

NFC is a wireless communications protocol, similar to Bluetooth and Wi-Fi. Two NFC chips can exchange data when approximately 4cm from each other. NFC devices can be passive (not powered) or active (powered) – an active device (e.g. smartphone) can retrieve information from a passive tag which can be embedded in a sign, a card or any other object.

NFC is designed to be used for small, quick data transfers when out and about, meaning it’s very fast to connect but has a relatively tiny data transfer rate; NFC can reach around 400 kbits/sec, whereas Bluetooth can reach up to 2 Mbits/sec, more than four times faster.

What’s so great about it?

• Travel light. You can save yourself from having to sift through bags full of coins for your morning cup of coffee. Instead, at many locations you can wave your phone at the counter to make the transaction.
• Simplify budgeting. Drafting a budget for your expenses can become tedious when you have to manually enter receipts and cash savings. Going cashless – whether by card or phone – generally means an easier-to-follow paper (or electronic) trail.
• Exchange info with people. NFC isn’t just for contactless payments – you can exchange files with other people by holding your phones together and using an appropriate app, or exchange your information with other service providers. Whether it’s verifying a train ticket or using a loyalty card at a shop, NFC can be used for a whole swathe of contactless services.
• Set up other connections. As anyone with a smartphone knows, connecting to a Wi-Fi network or a Bluetooth speaker can sometimes be a pain. NFC allows you to quickly connect to a device and verify who you are, before a higher-bandwidth connection is created. An example of this is Android Beam, which lets you share files between phones by connecting via NFC, and then establishing a Bluetooth connection.

What are the potential downsides of using NFC?

• Security risks. NFC doesn’t currently use any built-in encryption when transferring data, meaning a determined hacker could listen in to your connection to another device, or even intercept your information by imitating the device you’re trying to reach. The good news is that this is generally difficult to achieve, thanks to NFC’s extremely short range and quick data transfers; that said, be wary of using any exposed NFC tags in public, or transferring data between phones with someone you don’t trust.
• Battery life. Since you need your mobile to be powered to use NFC, you’re relying on your phone to have enough battery to make it through the day. If your battery dies just as you finish your grocery shop, you will need an alternative mode of payment. This means it’s often necessary to bring your debit or credit card, just in case.
• Your phone could be stolen. If your phone falls into someone else’s hands, your details can be compromised, though no more so than when you lose your credit card. Thankfully, major payment apps require your phone to be unlocked to make contactless purchases, but it’s still a risk.
• Fees. Using credit cards or bank cards all the time instead of cash carries the risk of extra transaction fees. You could manage this simply by being aware of all your card’s fees and restrictions.
• Travel restrictions. While many countries have been quick to adopt this form of technology, others have not – leaving you with a very groovy phone app that may have little use when you’re abroad, particularly in less-developed nations.

While there are some considerations to be aware of when it comes to NFC, it can be an extremely useful technology overall which continues to be accepted at more and more places around the world. When combined with NFC’s other useful functions, it seems likely we’ll see its uses continue to multiply in the coming years. If you’re keen to check out which banks will let you make contactless payments using your smartphone, view our articles on Apple Pay and Google Pay.